A note from Société Générale, this a snippet from it on "what does the EUR need in order to rally? "
SG nominate "The easy but unhelpful answer is that the EUR either needs
- better home-grown news (which might result in higher real Bund yields)
- or decreased concerns about the system's long-term viability (which might mean narrower BTP/Bund spreads, say),
- or it might need a weaker USD (which might mean lower Treasury and TIPS yields)."
Then add a fourth, saying
- the EUR's main support is its valuation, which is cheap against the USD but not in broader trade-weighted terms.
On Spain and Italy
- effective exchange rates of which have not fallen as much as the Eur-wide one or Germany's
And, finally:
- If the world's two most traded currencies are expensive (the USD) and not cheap (the EUR), there must be cheap currencies elsewhere. In G10, all the currencies other than the USD are trading well below post-GFC averages. The two cheapest are the CAD and GBP, though the latter is only cheap if a no-deal Brexit can be avoided
